IMF fears for Nigeria as Sri Lanka joins list of loan defaulters with $51bn debt

The International Monetary Fund (IMF) is expressing fears about Nigeria’s growing debt levels as more countries join the list of defaulters.

To finance its budget deficit, the Nigerian government borrows from banks, countries, and investors.

Sri Lanka recently told its foreign creditors that it can no longer pay its over $51 billion debt, joining the long list of countries over the years that have had issues with debt.

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Following the announcement that Sri Lanka has joined the list of nations that have defaulted on their commitments to foreign banks and investors, the International Monetary Fund (IMF) has raised concerns about Nigeria’s debt.

IMF said on Monday that banks in Nigeria and other emerging markets are exposed to high risk due to rising governments’ debt owed to the lenders.

Governments look to domestic banks for loans to support their budget deficit, and according to the Bretton Wood institution, government debt amounts to a quarter of bank assets in some emerging economies.

In Nigeria, the government’s debt to banks currently stood at N18.1 trillion, against the N648.26 billion in June 2015.

In 2021 alone, a year after the COVID-19 outbreak, the government borrowed N4.34 trillion, and has borrowed N704 billion as of January this year.

In a statement on Monday, 18 April 2022, IMF said governments across the world have spent aggressively to help households and employers weather the economic impact of the pandemic.

It said: “Average ratio of public debt to gross domestic product—a key measure of a country’s fiscal health—rose to a record 67 percent last year in emerging market countries.”

The rise in government bank debt, according to IMF, is also tied to the creditors using government bonds as an investment that they can use as collateral for securing funding from the central bank.

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